Do you have to make quarterly tax remittances in Canada?

What are the quarterly income tax payment dates in Canada?

Canadian taxpayers who follow a quarterly payment schedule submit payments on or before these dates:

• March 15
• June 15
• September 15
• December 15

Those in the farming or fishing industries may be required to make a single payment on December 31.

Who must make quarterly tax installments?

Jack, why you received the notice depends on where you live in Canada and how much taxes you owe in a year. Essentially, if you owe more than $3,000 in taxes payable, after all other tax withholdings in the current tax filing year and either of the two immediately preceding years, you will need to start making the quarterly remittances. For residents of Quebec, that number is $1,800.

For farmers and fishers, the procedure is different again. Only one installment is required when net tax owing is $3,000 in the current tax year and both of the immediately preceding two years.

Commonly, Canadians who don’t have enough tax deducted at source (from a paycheque, for example), and pensioners, investors, self-employed people and those receiving alimony may fall into the installment payment profile.

But in addition, those with rental property income or one-time capital gains (selling of a second property or selling of investment assets) may receive a request to remit from the CRA. In those cases, it’s important to know the options.

How are quarterly tax installments calculated?

To answer your question Jack, there are three options for calculating tax installment payments:

1. Current-year option
   An estimate is made for taxes owing in the current year. That’s especially effective if your income has fallen since last year. If your calculations result in taxes payable over $3,000 (or $1,800 in Quebec)—after taking into account any other tax withholdings—then divide that amount by four, and that one-quarter amount is due on each of the four due dates. But don’t forget that making a registered retirement savings plan (RRSP) contribution or having new and significant tax deductions or credits this year, could also reduce taxes payable this year.
2. Prior-year option
   Your income this year may be similar to last year’s, but significantly different from the year before that. You can base your installments on last year’s income in that case.
3. CRA billing method, also known as the “no-calculation option.” If the CRA sends out an installment notice, and you make the installments by the required deadlines, there will be no penalties nor interest charged, even if more is owing when the tax return is filed.

One thing to note: For option 1 and 2, if you owe more at tax filing time, then interest and possibility penalties can arise.

Is there a form to help with the calculations?

Yes, there is a chart that can help; check it out here. However, you’ll still need to calculate any taxes, preferably using tax software to make the math automatic, to get to net federal taxes payable on line 42000 first.

Will CPP and EI premiums make a difference to annual income taxes?

The answer is both yes and no. The self-employed, who are unincorporated and have net business income to report, may be required to make a payment of CPP (Canada Pension Plan) contributions. It may also include EI (Employment Insurance) premiums, if the taxpayer has opted to participate in EI.

CPP and EI are in addition to taxes otherwise payable. If you are required to make quarterly tax installments, these payments are included in the required remittances. But if the balance of income taxes payable, without the CPP/EI premiums, is less than $3,000, those premiums will not be added to the installment remittance threshold.

Top five questions about quarterly tax installments

Here are some common questions Canadians have around tax installments.

What happens if I am late paying a quarterly tax bill?

As mentioned, if you are not using the CRA’s billing method, you’ll be charged interest on late or insufficient installment payments when the T1 return is filed and that can sting. At the current quarterly prescribed rate (9% at the time of writing) that can add up quickly, as that interest is compounded daily.

It is possible to offset the compounding interest accruing when your installments are late or insufficient? Simply make the next payment early or pay more than you calculated the next payment to be.

What are the penalties of not making a quarterly tax payment?

In some cases, late or deficient installments will attract penalties if you will owe a lot of money at tax filing time. What’s a lot? CRA’s interest charge has to exceed $1,000. The penalties are 50% of the interest payable, less the greater of $1,000 and 25% of the installment interest. The penalty is calculated as if no installments had been made for the year.

What if my income changes from year to year?

If you qualify for quarterly tax remittances, you can reduce your income that is subject to tax with an RRSP or first home savings account (FHSA) contribution or by making sure that other larger deductions like child care, moving, or non-refundable tax credits like tuition, medical expenses or donations are all claimed in full.

If you’re self-employed, reduce net income from your proprietorship by claiming all deductions you are eligible for, and maximize capital cost allowances you are entitled to, to reduce net income.

Do I have to make quarterly tax payments?

No. Remember, you don’t have to make the installment payment at all, if your income is much lower this year and enough tax has been withdrawn and remitted for you at source. In that case, pay yourself: keep the money invested, pay off those credit cards, give to your favorite charity, or plan a vacation or make an RRSP, registered education savings plan (RESP) or FHSA contribution instead.

Will anything be different in 2024 over prior years? 

Yes, for Canadians who sold a cottage or rental property on or after June 25, 2024, the capital gains inclusion rate on gains over $250,000 has increased to 66%. Others may have disposed of assets in anticipation of this change. In these cases it will be important to carefully calculate the taxes owing this year, but also, the options for the instalment remittances due in 2025. If this was a one-time event, and your income will drop next year, review the “no-calculation option” from the CRA to make sure the numbers reflect the actual income you are expecting.

Read more about income taxes:

• Tax credits, due dates and when you can file: Your income tax return guide
• Audit-proof your side hustle
• What to do if you haven’t filed an income tax return
• Renting out the cottage? Don’t miss out on these 11 tax-deductible expenses

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is the best-selling tax author of 55 books, an award-winning business leader and the Founder and President of Knowledge Bureau, an online financial education institute.

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